Between the lines: Scots export hopes offer food – and drink – for thought

The recent food and drink export figures issued by Scottish Development International, showing that Scottish food exports have grown 14 per cent and smashed the £1 billion mark, is heartening news to the industry and economy.

Although whisky continued to dominate the food and drinks export trade – with sales by value up 10 per cent at £3.45bn, taking total food and drink exports to £4.5bn – the results are a step in the right direction toward Scotland Food and Drink’s ambitious targets for sector growth. The industry body wants to see a 25 per cent increase in trade by 2017 for the Scottish food and drink industry, with exports being the primary driver.

But where whisky leads, can others follow? The targets are undoubtedly high and the fact that the industry is primarily made up of SME companies makes it tough to see how this growth can be achieved without new impetus.

The key to success is for Scotland to be at the cutting edge of new product development and innovation. Scotland is proud of its world class academic institutions, which are producing thousands of graduates every year with skills relevant to the food and drink industry.

But it’s rather surprising that, given its advantages, innovation within the food and drink sector in Scotland has historically been lower than the national average and business expenditure on R&D by the sector accounts for just 1.5 per cent of the Scottish total.

However, there is evidence of this beginning to change. Businesses are investing more in product development and the record number of entrants in the recent Scotland Food and Drink Excellence Awards is testament to that fact.

At Grant Thornton, our research into the industry would suggest that there is likely to be an increase in the percentage of GVA spent on innovation over the next few years, and, coupled with achievable targets to be met, this will be crucial.

Innovation will also assist in the aim of increasing exports to £5.1bn by 2017 from the current level of £4.1bn, but it will not do it alone.

Creating the infrastructure and routes to overseas markets is another challenge. Whilst, there is no doubt that the whisky industry is an example for others to follow, only 5 per cent of Scottish companies are currently involved in international trading.

The best strategy for success will be to combine forces with other businesses through mergers and acquisitions, or joint ventures.

Although the food sector has traditionally has a high level of consolidation, in recent times deal volumes have been low. The number of food and drink M&A transactions last year was less than half of the number of deals in 2009.

But the good news is that major deals are being forecast in the Scottish food and drink industry as the sector bounces back from recession, with over two-thirds of industry executives expecting mergers and acquisitions to increase within the next year.

Undertaking joint ventures or mergers and acquisitions is a win-win situation. Not only will it allow the doors to open for smaller businesses looking to combine forces, but will also allow larger enterprises to expand their markets by acquiring businesses that complement their current offering.

There is no doubt that food provenance, quality and health are becoming far more important to the consumer. The benefits of a healthier lifestyle are being drummed into us, and Scotland’s strong reputation for origin and quality has been built up over recent years by playing on the image of the beautiful, rolling countryside and great outdoors.

The “Produce of Scotland” mark has become synonymous with excellence. However, as businesses begin to capitalise on this, the challenge becomes one of making sure standards don’t drop and the best is not undermined by lower quality products. It’s also a sad reality that the image of deep fried Mars bars persists to devalue attempts to show Scotland as a home of healthy foods.

There are challenges for the Scottish food and drink industry in achieving the government’s ambitious targets, but the current strength of the Scottish brand has paved the way for success.

But we need more companies to look beyond their current markets and this may see greater consolidation in the sector.

l James Chadwick is head of food and drink at Grant Thornton Scotland